T-Net British Columbia: Home

Member Login | Employer Login 


Tech News Tech Events Tech Careers Tech Directory Tech Stocks
T-Net 100 T-Net Members Feedback Advertising About T-Net





Celsius 488.333
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
Aug 13, 2004


By Brent Holliday
Greenstone Venture Partners

Celsius 488.333

“Hot summer streets,
And the pavements are burning,
I sit around,
Trying to smile,
But the air is so heavy and dry” – Bananarama, Cruel Summer

The summer was starting off just great.  Fantastic weather.  Optimism abounded as the recovery seemed to be spreading. Gas prices were even dropping.  Is it just me or did the wheels just come off completely?

The NASDAQ was at 2040 on June 26th.  In seven short weeks, the index is down 17% to 1750.

The TSX Information Technology Index is down 30% since close on June 26th.

What is going on?

It all started with Veritas reporting on July 6th that the revenue shortfall for the current quarter was directly caused by less large contracts for its software and general weakness in the enterprise software market. The investment community wiped US$4B off its value the next day, a 20% single day drop.

Then Red Hat spooked everyone further with some accounting restatements and we were off to the slippery slope downwards in technology confidence.

Two weeks ago, Microsoft called for a slower growth to no growth in the next two quarters, citing weaker enterprise demand. More fuel for the bears in technology.

John Chambers reported in his Q4 conference call this week that Cisco felt that its customers were feeling more cautious now than 2-3 months ago.  His own cautious words spooked the investors and sent the stock down steeply.

Yesterday, HP announced a disappointing quarter, pointing to failed execution in its Enterprise Server and Storage group, which lost US$208M by itself last quarter.  After the failed execution came the executions as the top management of the former Compaq group was cleaned out. Ouch.

So the local companies are getting smacked as well.  Sierra Wireless beat the street by 6 cents on its earnings performance… and the stock dropped 10% immediately.  PMC-Sierra is at a 52-week low after the Cisco scare sent all of its suppliers off the deep end.

So, I ask again… what is going on?  Well, I have looked at all the theories and assimilated all of the facts.  The single person responsible for the mess we are in now is Michael Moore.  Think about it… optimism abounds until June 26th.  Then Fahrenheit 9/11 is released.  We all become cynics, despondent and full of anger.  The stock market slides on our sudden pessimism.  Correlation or causality?  Huh? Eh? {Apparently Moore doesn’t know the difference between the two either.} Here’s more for you:  Bowling For Columbine, released in August 2002 (Dow immediately drops from 9000 to 7400 in 45 days).  It’s my conspiracy theory and I’m sticking to it.  Has anyone checked if Moore just made billions shorting the stock market?

What is really going on is this… a slow, quiet panic.  I do believe that the stock markets are going lower because of global conditions and high oil prices.  (But oil has no impact on IT spending, for instance).  It’s all about confidence, or lack thereof.  I haven’t seen this theory on the overall erosion of the broader stock market yet, and, unlike my Moore rant above, I really do believe this is true: People are bailing out because they believe that a terrorist attack of some scale will happen before the US election.  So as far as stocks go, it will be a miserable couple of months.  Plan accordingly.

But for those of us in the business of selling to enterprises, is that overall fear going to stop IT buying?  Don’t let the stock market and pundits fool you into believing that the underlying enterprise IT market is eroding.  For every bit of cautious news about the next 6 months, there have been very good stories emerging.  And some interesting themes are emerging that we all need to pay attention to.

Dell claimed, on its record quarterly profit announcement last week, that shipments jumped 19 percent in the quarter and that they had outstanding success in their servers and storage group.  Hmmmm, Dell sells lower end servers and storage, HP’s stuff is more expensive.  So is spending slowing or are companies looking for value in their hardware?

Veritas said the larger (read: >$500,000) contracts had dried up.  SAP is noticing the same thing.  This can and should be tied to the fact that integrators and solution vendors are reaping big wins.  IBM and its outsourced IT model is flourishing (a great quarter announced three weeks ago).  Locally, MDA had record profits last quarter.  I’m hearing this more and more out there:  What the enterprise is looking to spend money on in software is customized solutions.  The companies that find the profitable way to deliver custom solutions are going to do very, very well in the next while.  One way to reap this is to sell components that others use to build custom solutions.  Another way is to be verticalized and provide a certain sector with knowledge of their business and processes to build what works for them.

Wireless hardware, software and services seem to still be red hot.  From Sprint to Qualcomm, from Sierra Wireless to RIM, the recent quarters were stellar across the board. The stock prices have not held up accordingly, but when you think we are at the bottom, wireless might be where the bargains are.

The stock market is an indicator of confidence in the economy, but it is not the only indicator.  It is being weighed down by serious concerns and, in my mind, worst possible scenarios.  If we do avoid any catastrophes in the coming months, I think there will be a realization of solid underpinnings to the technology sector and a big rebound.  Now, the next time Michael Moore releases a movie… SELL!

What Do You Think? Talk Back To Brent Holliday

 



Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

Something Ventured Archive

Online Venture Capital Guide

Printable edition